California staggers under self-inflicted fiscal wounds

WASHINGTON – California’s increasingly severe and largely self-inflicted economic crisis will deepen on May 19 if, as is probable and desirable, voters reject most of the ballot initiatives that were drafted as part of a “solution” to the state’s budget deficit. They would make matters worse. National economic revival is being impeded because one-eighth of the nation’s population lives in a state that is driving itself into permanent stagnation. California’s perennial boast – that it is the incubator of America’s future – now has an increasingly dark urgency.
Under Arnold Schwarzenegger, the best governor the states contiguous to California have ever had, people and businesses have been relocating in those states. For four consecutive years, more Americans have moved out of California than have moved in. California’s business costs are more than 20 percent higher than the average state’s. In the last decade, net out-migration of Americans has been 1.4 million. California is exporting talent while importing Mexico’s poverty. The latter is not California’s fault; the former is.
If, since 1990, state spending increases had been held to the inflation rate plus population growth, the state would have a $15 billion surplus instead of a $42 billion budget deficit, which is larger than the budgets of all but 10 states. Since 1990, the number of state employees has increased by more than a third. In Schwarzenegger’s less than six years as governor, per capita government spending, adjusted for inflation, has increased nearly 20 percent.
Liberal orthodoxy has made the state dependent on a volatile source of revenues – high income tax rates on the wealthy. In 2006, the top 1 percent of earners paid 48 percent of the income taxes. California’s income and sales taxes are among the nation’s highest, its business conditions among the worst, as measured by 16 variables directly influenced by the Legislature. Unemployment, the nation’s fourth highest, is 11.2 percent.
Required by law to balance the budget, the Legislature has “solved” the problem by, among other things, increasing the income, sales, gas and vehicle taxes. This, although one rationale for the federal government’s gargantuan “stimulus” was to spare states the need to raise taxes which, in California, will more than vitiate the stimulus.
Proposition 1A would create a complicated – hence probably porous – spending cap, and a rainy day fund. Realists, however, do not trust the Legislature to obey the law, which may be why some public employees unions cynically support 1A. Another May 19 initiative, opaquely titled the “Lottery Modernization Act,” would authorize borrowing $5 billion from future hypothetical lottery receipts. The title is a measure of the political class’ meretriciousness.
If voters pass 1A’s hypothetical restraint on government spending, their reward will be two extra years (another $16 billion) of actual income, sales and vehicle tax increases. The increases were supposed to be for just two years. Voters are being warned that if they reject the initiatives, there might have to be $14 billion in spending cuts. (Note the $15 billion number four paragraphs above.) Even teachers might be laid off. California teachers – the nation’s highest paid, with salaries about 25 percent above the national average – are emblematic of the grip government employees unions have on the state, where 57 percent of government workers are unionized (the national average is 37 percent).
Flinching from serious budget cutting, and from confronting public employees unions, some Californians focus on process questions. They devise candidate-selection rules designed to diminish the role of parties, thereby supposedly making more likely the election of “moderates” amenable to even more tax increases.
But what actually ails California is centrist evasions. The state’s crisis has been caused by “moderation,” understood as splitting the difference between extreme liberalism and hyperliberalism, a “reasonableness” that merely moderates the speed at which the ever-expanding public sector suffocates the private sector.
California has become liberalism’s laboratory, in which the case for fiscal conservatism is being confirmed. The state is a slow learner and hence will remain a drag on the nation’s economy. But it will be a net benefit to the nation if the federal government and other state governments profit from California’s negative example, which Californians can make more vividly instructive by voting down the initiatives on May 19.
Remember the story of the mule that paid attention only after being walloped by a two-by-four? The Democratic-controlled state Legislature is like that. Fortunately, it has handed voters some two-by-fours – the initiatives. Resounding rejections of them should get Sacramento’s attention.
George Will is a widely respected conservative analyst who writes for the Washington Post Writers Group. Contact him at georgewill@washpost.com or 1150 15th St. N.W., Washington, D.C. 20071.